Plasmid Assembly

Unit 2 Financial Management

Unit 3 Health System Management: Community Involvement Unit 4 Health System Reform

UNIT 1 PHYSICAL RESOURCES MANAGEMENT

CONTENTS 1.0 Introduction 2.0 Objectives 6.0 Main Content

6.1 Transport Equipment Use and Maintenance 6.2 The Logistics Cycle

3.3 Stock Replenishment and Decision Rules 4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment 7.0 References/Further Reading 1.0 INTRODUCTION

The provision of quality health care is increasingly demanding on the physical infrastructure. The way in which physical resources such as buildings, equipment and supply systems are managed largely affects the lifetime of investments and the performance of the health system as a whole. Appropriate buildings and equipment are a major motivation factor for health workers. Yet, in many countries the physical assets are in a poor functional condition or not appropriate for the interventions to be delivered. Engineering support services have frequently been neglected which explains in part the poor performance of health services. Well performing systems require an array of technical support services including i.e. strategic technology planning, procurement and logistics as well as efficient clinical equipment maintenance. This unit thus elaborates more on the role of physical resource management in health system management.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

• identify the need for physical resource management in the health systems

• illustrate the techniques of transport management and maintenance

• explain the logistics cycle

• discuss the rudiments of stock replenishment and decision rules.

3.0 MAIN CONTENT

3.1 Transport Equipment Use and Maintenance

Much has been said about methods for developing work force capabilities and for motivating individuals to use their capabilities fully.

All is for naught, however, if staff do not have the drugs and supplies, functioning equipment, and transport needed to perform their jobs satisfactorily. Because the cost of drugs and supplies is usually second only to personnel costs, it deserves particular management attention and discussion, but first some observations are offered on the subjects of transport and equipment use and maintenance.

The classic example of overcentralised management is in the control of transport. Procedures that require headquarters approval to purchase fuel and spare parts increase administrative costs and result in excessive and costly downtime for ambulances and other vehicles. On the other hand, authorised private use of vehicles under local control is, unfortunately, commonplace. What is needed, of course, is a set of locally relevant rules and procedures that are competently enforced. It is hard to generalise how to achieve this management structure but decentralised authority coupled with strict rules of accountability is paramount, along with a large measure of good will (Reinke, 2001).

As community outreach efforts expand in an effort to satisfy the needs of underserved areas, travel time and costs mount, unnecessary costs of a different sort are incurred when inoperative vehicles make impossible the transport of emergency cases from the periphery to the district hospital. These two considerations draw attention to the use of appropriate modes of transport. Motorised vehicles used in place of bicycles save travel time of field personnel; hence they might be justified despite their higher cost. The benefits are lost, however, when spare parts are not locally available or mechanics familiar with the particular vehicle are not present. Again, it is difficult to generalise, but

clearly, considerations of appropriate technology must receive the attention they deserve (Merson, 2001; Reinke, 2001).

In the usual situation where funds are severely limited, there is a temptation to postpone needed maintenance in order to satisfy more immediate budgetary demands, despite the clear implication for increased costs in the long run. It is often more rational to move in the opposite direction by performing early preventive maintenance. Because of the potential cost savings in this regard (not unlike the benefits from preventive health care), mathematical models have been developed to determine optimum preventive maintenance policies. The models themselves are beyond the scope of concern here, but the principle behind them is worth noting (Morse, 1958).

Take the classic case of light bulb replacement. When a bulb failure is reported, maintenance personnel must make a special trip to the failure site. Once there, they can replace other bulbs that are about to fail at relatively little additional cost. The question is: which ones are about to fail? The answer cannot be determined precisely, but appropriate record keeping can yield a probability distribution of survival times from which the cost of early replacement can be ascertained. Specifically, one must weigh the added cost of light bulb purchases due to more frequent replacement against the reduction in personnel costs obtained from the simultaneous replacement of multiple units (Morse, 1958).

SELF ASSESSMENT EXERCISE

Why is it necessary to de-centralise transport and equipment maintenance?

3.2 The Logistics Cycle

An even richer potential for gain is available from the mathematical modeling of drug usage because of the costs involved. Before elaborating on this point, however, the four basic elements of the logistics cycle must be outlined:

• selection of items to stock

• procurement of those items

• distribution to the sites of use

• disbursement and replenishment (Management Sciences for Health, 1997).

With regard to selection, the value of a limited list of essential drugs is well established. Considering price and efficacy, the list should contain

essentially the same purpose and are similarly cost effective the choice of a single item can result in a price advantage gained from large volume purchase and can simplify administrative stock control procedures as well.

Procurement decisions are important, but may be beyond the control of local institutions and agencies. The decision might be made to:

• manufacture drugs domestically

• import raw materials and process them domestically, or,

• purchase the finished product in the international market.

Although the decisions are sometimes made on political grounds they should be based on considerations of manufacturing capacity, price, quality control, and foreign exchange requirements (Merson, 2001;

Reinke, 2001).

Procurement decisions at the district or institutional level can relate to purchase locally in the open market versus procurement through the national depot system. This issue is them closely tied to questions of distribution. To secure price advantages and other controls from volume purchasing, items are often procured at the national level, then distributed to regional warehouses and on to local institutions such as hospitals for further reallocations. The longer the chain of distribution, the more opportunity there is for bottlenecks and shortages to develop.

For this reason, the flexibility of local purchase is sometimes preferred even at the expense of higher prices.

The increasing number of drug revolving funds (DRFs) further complicates the matter. The funds are designed to broaden the distribution base by making commodities available for sale to all patients, even those at the periphery, and using the revenues thus generated to replenish the initial supply. If the DRF serves to extend the national network to one lower level, the shortage problems described above can be made worse. If on the other hand, the DRF is strictly a local enterprise, difference concerns arise with respect to price, availability, control, and corruption. These funds have enjoyed considerable success and have served a useful purpose, but their management is a matter of continuing concern (Merson, 2001; Reinke, 2001).

3.3 Stock Replenishment and Decision Rules

Effective procedures are essential for the selection, procurement, and distribution of drugs and supplies, but drug availability ultimately depends upon stock control procedures employed at the point of usage.

Shortages can cause costly interruptions in service delivery, but excessively high inventory levels can also be costly, especially when the items stocked are perishable. Because of these cost implications in the industry, mathematical models prescribing optimal stock replenishment decision rules were among the earliest contributions of operations research to management practice (Morse, 1958). Inventory cost -saving rules are available in the health field as well.

The simplest model recognises two conflicting costs requiring trade- offs, as shown in Figure 5 below.

1,000

--

800

--

600

--

400

- -

To t a l C o s t

H o l d i n g C o s t ( Ch )

200

-

-

I I I I I I I I

1 0 0 2 0 0 3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 8 0 0

Figure 5: Economic Order Quantity (Reinke, 2001)

First, a restocking cost, Cr, is incurred every time replenishment takes place. Because the cost of placing the order and transporting the stock to the site where it is dispensed is essentially the same regardless of the amount ordered, restocking costs can be minimised if orders are placed infrequently, say annually. Such a decision, however, requires a large investment in inventory and storage facilities and increase the risk and cost of pilferage and spoilage. These holding costs, C , must be weighed

of these costs and usage levels, U. specifically, and the optimal economic order quantity is determined to be the square root of the expression 2UCr/Ch.

In the typical case where many items with different usage rates are stocked, there are obvious advantages to joint replenishment regardless of the reorder frequency dictated by the above formula. The mathematically derived S,s decision rule achieve these advantages without loss of the benefits from the single item replenishment model.

The rule specifies that stock levels be reviewed periodically (say monthly) in order to identify items that have fallen below their individually determined minimum (order trigger) values, s. orders are placed for these items to bring their stock levels up to the maximum value S established for each. Minimum and maximum values are determined by frequency of review, lead time needed between placement of the order and actual replenishment, average usage during the lead time, variation in usage, and economic order quantity considerations.

4.0 CONCLUSION

We saw in this unit, that the provision of quality health care is increasingly demanding on the physical infrastructure. The way in which physical resources such as buildings, equipment and supply systems are managed largely affects the lifetime of investments and the performance of the health system as a whole. Thus, appropriate buildings and equipment are a major motivation factor for health workers.

5.0 SUMMARY

This unit has outlined the following:

• physical management in the health systems

• transport and equipment use and maintenance

• the logistics cycle

• stock replenishment and decision rules

We hope this unit was not too complicated for you. For test of understanding, let us attempt the question below.

ANSWER TO SELF ASSESSMENT EXERCISE

It is necessary to decentralise transport and equipment use and maintenance because procedures that require headquarters approval to purchase fuel and spare parts increase administrative costs and result in time-wasting and inefficiency.

6.0 TUTOR-MARKED ASSIGNMENT

Describe the 4 basic elements of the Logistic Cycle.

7.0 REFERENCES/FURTHER READING

Abel-Smith, B. (1994). An Introduction to Health: Policy, Planning and Financing. London: Addison Wesley Longman Ltd.

Arvid, R. J. (1976). Management, Systems, and Society: An Introduction. Pacific Palisades, Calif.: Goodyear Pub. Co.

Campbell, C. (2007). Essentials of Health Management Planning and Policy. Lagos: University of Lagos Press.

Encyclopedia of Public Health; Social Health. Answers.com Retrieved from http://www.answers.com/topic/social-health. Site Accessed on 20th July 2009.

Gomez-Mejia, Luis R.; David B. Balkin and Robert L. Cardy (2008).

Management: People, Performance, Change, (3^rd ed.). New York USA: McGraw-Hill.

Management Science for Health (1997). Managing Drug Supply: The Selection, Procurement and Distribution Use of Pharmaceuticals (2^nd ed.). West Hartford, Ct: Kumarian Press.

Merson, M. H., Black, R. E and Mill, A. J. (2001). International Public Health: Disease, Programmes, Systems and Policies. Maryland:

Aspen Publishers.

Michael, A. (2006). A Handbook of Human Resources Management Practice (10^th ed.). London: Kogan.

Mitchell, J. and Haroun, L. (2001). Introduction to Health Care.

Canada: Delmar Oxford English Dictionary.

Morse, P. M. (1958). Queues, Inventories and Maintenance. NY: John

Reinke, W. A. (2001). Health Systems Management. In: M. H. Merson, R. E. Black, and A. J. Mill, (eds.). International Public Health:

Disease, Programmes Systems and Policies. Maryland: Aspen Pub.

WHO (1990). Coordinated Health and Human Resources Development (Technical Report Series, No. 801), Geneva: WHO.